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Difficulty: MediumReinsurance Concepts

Match each reinsurance operational term or concept with its correct definition or scenario.

  • Treaty ReinsuranceAn automatic arrangement where the assuming insurer accepts all policies that meet predefined class criteria.
  • Facultative ReinsuranceAn optional arrangement where coverage is negotiated and evaluated on a case-by-case basis for a single, specific risk.
  • RetrocessionaireAn entity that accepts a portion of risk from a reinsurance company to further distribute potential loss exposure.
  • Retention LimitThe maximum dollar amount of risk that the original issuing insurance company keeps for its own financial account.

Answer

Treaty Reinsurance matches the automatic arrangement; Facultative Reinsurance matches the case-by-case arrangement; Retrocessionaire matches the entity accepting risk from a reinsurer; Retention Limit matches the maximum risk amount kept by the original company.
Each operational term defines a specific mechanism or entity within the risk transfer process. Treaty and facultative define how risk is accepted, retention defines what is kept, and the retrocessionaire defines the tertiary level of risk transfer.

Step-by-Step Solution

1
Analyze the definitions distinguishing between automatic and optional reinsurance placements.
Identify that automatic acceptance describes Treaty Reinsurance, while case-by-case negotiation describes Facultative Reinsurance.
These are the two primary methods of placing reinsurance and are fundamentally distinguished by the reinsurer's obligation to accept the risk.
2
Evaluate the roles of the entities involved in risk transfer chains.
Identify that an entity insuring a reinsurer is a Retrocessionaire.
Understanding the hierarchy of risk transfer is essential; primary transfers to reinsurer, reinsurer transfers to retrocessionaire.
3
Define the financial boundary of the primary insurer's exposure.
Identify that the amount kept by the original company is the Retention Limit.
The retention limit dictates exactly when the reinsurance coverage begins to indemnify the primary insurer.

Key Concept

Reinsurance Concepts
Estimated Time:1m 30s
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Reinsurance Concepts

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